HK regulator imposes $2.5m fine on China Everbright Securities (HK) Limited

Hong Kong’s Securities and Futures Commission (SFC) today announces that it has reprimanded China Everbright Securities (HK) Limited (CESHK) and fined it $2.5 million for pledging its clients’ securities with banks for financial accommodation without valid authorization.

The SFC’s investigation found that between April 1, 2018 and August 19, 2018, CESHK relied on expired standing authority given by around 6,841 clients to pledge their securities as collateral in obtaining credit line from three banks in Hong Kong. The standing authority in question had expired on March 31, 2018.

The regulator notes that Section 4(1) of the Securities and Futures (Client Securities) Rules provides that a standing authority is a written notice that, among other things, is given to an intermediary to authorize it to deal with client securities or securities collateral from time to time received or held on behalf of the client in one or more specified ways. Unless the client giving the standing authority is a professional investor, the standing authority shall not be valid for a period exceeding 12 months.

By pledging clients’ securities without valid authorization from them, CESHK breached the Securities and Futures (Client Securities) Rules (CSR) and the Code of Conduct.

In determining the sanction, the SFC took into account a range of factors, including:

• after CESHK discovered its non-compliance with the CSR, it arranged call-backs of all pledged client securities and made a self-report to the SFC;
• CESHK’s failure to renew the clients’ standing authority was mainly caused by miscommunication between its former and current compliance team members and there is no evidence of systemic failure on the part of CESHK;
• there is no evidence of client loss as a result of CESHK’s breach; and
• CESHK co-operated with the SFC in resolving the SFC’s concerns and accepting the SFC’s findings and disciplinary action.